I've read the reg and a dozen threads on this subject and have gotten myself confused!!

We are a small servicer. We have a loan set up with escrow for taxes and hazard insurance. The loan balance is small at just over $5,000, but the loan is significantly past due and the escrow balance is negative.

The escrowed hazard insurance is due at a cost of over $1,000. If we opt to force place hazard insurance, are we allowed to only get coverage of $5,000 that covers the collateral for the bank, or are we required to get coverage that protects the borrower's equity and is equivalent to their current policy? Either option would be less expensive than the current policy.



(iii) Small servicers. Notwithstanding paragraphs (k)(5)(i) and (k)(5)(ii)(B) of this section and subject to the requirements in § 1024.37, a servicer that qualifies as a small servicer pursuant to 12 CFR 1026.41(e)(4) may purchase force-placed insurance and charge the cost of that insurance to the borrower if the cost to the borrower of the force-placed insurance is less than the amount the small servicer would need to disburse from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges were paid in a timely manner.

We force place for the replacement cost or the principal balance, whichever is less. We determine the replacement cost to be whatever the most recent hazard policy lists as the dwelling coverage. I believe if the loan is sold to Freddie/Fannie the required coverage is the greater of.

What you force place is a matter of your loan contract. On a $5,000 loan that is that severely past due, why are you even pouring more good money in after bad? The chances of you collecting what they currently owe you are probably already slim.